TOM PAINE AND THE
IRONIES OF
SOCIAL INSURANCE
Elizabeth Anderson
John Rawls Collegiate Professor of Philosophy and
Women’s Studies
University of Michigan, Ann Arbor
Social Insurance as Socialism?
"Obama's
Socialist
Policy, Class
Warfare And
Bureaucratic
Socialism"
September 22, 2011, GOP Presidential Fox
News/Google debate
Q: Does President
Obama’s health
care plan represent
socialism?
Michael Steele:
Yes. Next
Question.
National Press Club, July 20, 2009
“From here it's a short
step to all the rest of
socialism, to
determining his pay and
pretty soon your son
won’t decide when he’s
in school where he will
go or what he will do for
a living. He will wait for
the government to tell
him where he will go to
work and what he will
do.”
AMA “Operation Coffee Cup” against
Medicare (1961)
Illustrated Road to Serfdom, Look (1945)
http://mises.org/books/TRTS/
Ironies of Social Insurance
• Social insurance originated as defense of capitalism
against socialism
• Hayek understood and endorsed this goal
• Grasping this requires abandonment of capitalist
mythology
• Principle of desert
• “Natural” property rights as constraints on institutional design
• “Negative liberty” as fundamental constraint
• Consequent rejection of Left-Libertarian, Luck Egalitarian
models
• Adoption of systemic perspective on design of economic
institutions
• Convergence of Hayek, Rawls
Intellectual Origins of Social Insurance
Outlines of an Historical
View of the Progress of the
Human Mind, 10th Epoch
(1794)
“setting chance against
chance,” state or private
association may pool
workers’ contributions to
establish pension, survivors’,
disability benefits,
stakeholder grants
Nicolas de Condorcet
Alexandre Fragonard, The Death of Condorcet in prison on
28th March, 1794
http://www.ssa.gov/history/paine4.html (1796)
Robespierre executed July 27, 1794
Paine released from prison
Paine vs. “Conspiracy of Equals”
“Gracchus” Babeuf (1760-1797)
Babeuf’s Doctrine
• Equal right to all property
• Private appropriation in state of nature a crime
• And zero-sum: “one succeeds in having too much only by
causing others not to have enough.”
• Luck egalitarianism: “There must exist no form of
privation but the one that nature imposes upon everyone
as a result of some unavoidable accident, in which case
these privations must be borne by everyone and divided
up equally among them.”
• Leveling down of talents: reduce the talented “to a state
whereby he can do the work of only one man, so that he
will be able to demand the recompense of only one man.”
Babeuf’s Communist Program
• Worker insurrection against Directory
• Abolish private property
• To each, according to his need
• “Render the lot of each member of the association
independent of chance” by
• Common administration of all, as in the army:
• State assigns work
• Production sent to common store
• Provision from common store, in accord with need and
equality
François Topino-Lebrun, La Mort de Caïus Gracchus (1798)
Paine’s Capitalist Alternative
• Universal Social Insurance
• Retirement pensions
• Survivor benefits
• Disability insurance
• Universal Stakeholder Grants for Youth
• Funded by 10% inheritance tax
Advantages
• 1st realistic plan to abolish poverty
• Poverty prevention vs. poverty relief (Poor Laws)
• “a right, and not a charity”
• Universal entitlement:
• Equality of all
• Avoid invidious distinctions, humiliation of means testing
• Common interest in seeing all prosper: “it is impossible to enjoy
affluence with the felicity it is capable of being enjoyed, whilst so
much misery is mingled in the scene”
• Consistent with private property
• Liberty of occupational choice
• To property owners: better than Babeuf!
“I am a friend to riches
because they are
capable of good. I
care not how affluent
some may be,
provided that none be
miserable in
consequence of it.”
Social Insurance as Anti-Socialist
Chancellor, German Empire and
Prime Minister of Prussia:
• Health insurance, 1883
• Workers’ comp, 1884
• Retirement insurance, 1889
• Opposed max. hours laws,
factory inspections, limits on
child labor
• Passed Anti-Socialist laws
Otto von Bismarck
Principles of Justice: A Typology
Local
• Unconstrained Pure Procedural Justice: Transactional: 1st
principles of appropriation, exchange
• Locke (?)
• Nozick
• Individually Allocating: “To each, according to his _____”
• Need
• Desert
Systemic
Local rules comprehensively subordinate to
systemic aims
All property rights positive (artificial), subject to
change depending on overall effects on
underlying interests
Constrained Pure Procedural Justice
• (Rule) Utilitarianism
• Rawls
Post-Rawlsian Egalitarianism
Strategy: defend egalitarian goals within terms of
local principles of justice used to defend capitalism
Bifurcated distributive justice:
• Part of total product subject to strict egalitarian
principles
• Part subject to local capitalist principles
Luck egalitarianism
• Inequalities due to brute luck eliminated
• Inequalities due to desert allowed (Cohen,
Arneson) or
• Inequalities due to voluntary market
transactions allowed (Dworkin, Rakowsi)
Left-Libertarianism
Vallentyne, Steiner, Otsuka
• Income from land, natural resources distributed
equally
• Income from labor, capital distributed according
to free markets
Local vs. Systemic Egalitarianism
Luck Egal./Left-Lib.
Height of
ladder does not
matter
Rawls’s Difference P.
Height
of top 
max.
bottom
Luck must
not  rung
Equal start
Luck may 
rung if
opportunities,
process fair
Max. height
lowest rung
Locke’s Local Justification of Property
Social contract theory: Earth
originally an open-access
commons
Private appropriation of land
limited by:
• Labor mixing (desert)
• Sufficiency constraint
• $ enables ≠ holdings consistent
with these constraints
John Locke
Paine’s Local Critique
• Rise of Private Property violates
sufficiency condition
Mass poverty arises with agriculture
• Desert claims of labor limited to
value-added
• Residual claim of all to value of
natural resources  landowners
owe rent to rest of society
• Distributed to vindicate sufficiency
condition: universal social insurance
to prevent/abolish poverty
Work 2X, lose 5-6 in.
Social Statics (1851):
State the universal landlord
Private users owe rent to
society
Principles of Ethics (1891):
Value of unimproved land too
low for rents to abolish poverty
Hebert Spencer
Bismarck vs. Beveridge
1942 Beveridge Plan (Socialist):
• Low, flat contributions
• Low, flat benefits (egalitarian)
• Supplementary reliance on
general taxes
 Declining Popularity
William Beveridge
Bismarckian Social Insurance:
• Contributions graded by income
• Benefits graded by income
 Steady, High Popularity
Paine’s Systemic Critique
“The fault is in the system.”
Inheritance tax on personal as well as landed property:
“it is as impossible for an individual to acquire personal
property without the aid of society, as it is for him to make
land originally . . . . All accumulation, therefore, of personal
property, beyond what a man’s own hands produce, is
derived to him by living in society; and he owes on every
principle of justice, of gratitude, and of civilization, a part of
that accumulation back again to society from whence the
whole came.”
“There is nobody in this country who got
rich on his own. . . . You built a factory
out there? Good for you. But I want to be
clear: you moved your goods to market
on the roads the rest of us paid for; you
hired workers the rest of us paid to
educate; you were safe in your factory
because of police forces and fire forces
that the rest of us paid for . . . . Now
look, you built a factory and it turned into
something terrific, or a great idea? God
bless. Keep a big hunk of it. But part of
the underlying social contract is you take
a hunk of that and pay forward for the
next kid who comes along.”
Elizabeth Warren
Hayek: Market Prices Undeserved
• For prices to serve their information function, they must be
free to signal unforseeable shocks external to actors’ wills,
minds
• These signals are necessarily undeserved
• Same ignorance that undermines centralized planning
also prevents post hoc reward by desert
• No one can determine what any actor should have known,
done, as baseline for desert
Local Liberty Principles Not Preemptive
“Probably nothing has done so
much harm to the liberal cause as
the wooden insistence of some
liberals on certain rough rules of
thumb, above all the principle of
laissez faire.” (p. 17)
“No sensible person should have
doubted that the crude rules in
which the principles of economic
policy of the 19th c. were expressed
were only a beginning—that we
had yet much to learn . . . .” (p. 18)
Social Insurance Compatible with Freedom
“There is no reason why [in a wealthy society]
. . . security [“the certainty of a given
minimum of subsistence”] should not be
guaranteed to all without endangering
general freedom. . . . [Also,] the case for the
state’s helping to organize a comprehensive
system of social insurance is very strong . . . .
[T]here is no incompatibility in principle
between the state’s providing greater security
in this way and the preservation of individual
freedom.” (pp. 120-1)
A Convergence of Minds
“Social and economic
inequalities are to be arranged
so that they are . . . reasonably
expected to be to everyone’s
advantage.”
A Theory of Justice, rev. ed., p.
53.
[Progress] “leaves no other
inequality subsisting but
what is useful to the interest
of all, because it will favor
civilization, instruction, and
industry, without drawing
after it either dependence,
humiliation or poverty.”
Outlines of an Historical
View of the Progress of the
Human Mind, 10th Epoch
(1794)
Nicolas de Condorcet
Hayek on Rawls
“We agree on what is to me the central
point.” p. xiii
“I have no basic quarrel with an author
who, before he proceeds to [the
“problem of justice in connection with the
deliberate design of political
institutions”], acknowledges that the task
of selecting specific . . . distributions of
desired things as just must be
‘abandoned as mistaken in principle’ . . .
Rather, the principles of justice define
the crucial constraints which institutions
and joint activities must satisfy . . . .” p.
100